Risk-Based Capital Rule: It’s Time for a Board Vote

NCUA Board Member Rick Metsger has thrown down the gauntlet. In recent remarks before the Cornerstone Credit Union League Leadership Conference, Metsger told the critics of the proposed changes to the Risk-Based Capital rule to either get on board or risk (no pun intended) the previously passed rule, for which there is an abundance of criticism, going into effect Jan. 1, 2019.

He explained that the proposed changes were carefully crafted and negotiated through his staff and that of Republican NCUA Chairman Mark McWatters, resulting in a “reasonable, non-partisan compromise.” He specifically took issue with a CUNA comment letter sent to the NCUA calling the RBC rule “functionally unnecessary” and “a solution in reach of a problem.”

Metsger laid out his reasoning as to why the proposed changes made sense and are good ones. He emphasized that the proposal takes into consideration the asset size of the credit union and addresses the often heard complaint that “one size does not fit all.” He also challenged those who have asked to delay the rule longer than the proposed additional year. He asked, how much longer do the critics want to delay the inevitable?

To those who believe credit unions should not be subject to RBC, he correctly pointed out that all financial institutions other than credit unions already are. Further, there are no exceptions based on size as the proposed rule allows for credit unions.

Metsger also took issue with the efforts of CUNA and NAFCU to lobby Congress to pass legislation that would delay the implementation of RBC for two more years. Both CUNA and NAFCU have publically endorsed the legislation and are working hard for its passage.

Everyone knows that just because an issue is before Congress, the odds of action being taken by both chambers are usually slim to none. Although this Congress has passed more financial reform legislation than any in recent years, nothing is certain. So if the NCUA follows the advice the trades are giving them and holds off acting on RBC, and Congress fails to act, the rule now on the books will become law without the improvements or additional one-year delay. So by wanting even more changes to RBC or advocating for a “wait and see” attitude with Congress, the trades are risking, according to Metsger, any changes being made to the rule.

The question now becomes when and if the NCUA board will act on the proposed RBC changes. Reading between the lines, it is clear that Metsger delivered a pointed message. The comments made by the trades can characterize them as still wanting more, not being satisfied and never being happy. Perhaps they fail to understand this agreed-upon rule was the best anyone could have expected from a split-party, two-person board.

The “M & M” compromise contains good changes and makes RBC better and more palatable. It’s time to move it forward with a board vote and that vote should come sooner than later.

Michael Fryzel is an attorney and former NCUA Chairman. He can be reached at meflaw@aol.com.